Kanthi Narahari, J. - (1.) THE present application has been filed by the respondents in the main company petition under section 8 of the Arbitration and Conciliation Act, 1996 read with regulations 14, 17 and 44 of the Company Law Board Regulations, 1991 praying this Bench to refer the above company petition for determination by arbitration. The counsel appearing for the applicants herein submitted that the above company petition has been filed alleging breach of the agreements including the articles of association which contain arbitration clauses, viz., articles of association of the 1st applicant -company herein, the franchisee agreement dated 9th April, 2011 entered into by respondent No. 1 herein with the 1st applicant herein and the shareholder's agreement dated 14th August, 2002 executed by the respondent No. 1 with the applicant Nos. 2 At 3 herein. The aforesaid articles and the agreements provide that any disputes or differences arising the re -under shall be resolved by arbitration. The respondents herein have abused the due process of law by filing the above company petition as the reliefs sought for relate to the issues arising out of the above articles and the agreements which contain the arbitration clause. The parties have consistently agreed to resolution of disputes by arbitration and, therefore, all the disputes raised in the company petition ought to he referred to arbitration. It is pertinent to mention that the respondents herein, in a similar matter concerning a franchisee in Mumbai, have resorted to determination by arbitration and have filed a petition before the Chief Judge, City Civil Court, Hyderabad under section 9 of the Arbitration and Conciliation Act, 1996. In view of the reasons, the present Application may be allowed by referring the parties to arbitration.
(2.) THE respondents herein have filed a detailed counter to this application and contended that the arbitration clauses relied upon by the applicants herein are wholly irrelevant to the present disputes. The above company petition concerns the actions of the applicant Nos. 2 and 3 herein as directors of the company. It concerns diversion of business, use of dominant position to secure unfair advantages against the minority shareholders and to Lai mismanagement of the applicant -company lit their capacity as directors of the company which can only he addressed under sections 397 and 398 of the Companies Act, 1956. The existence of an arbitration clause does not bar the statutory remedies available under the Companies Act, 1956 since the nature of the two proceedings are wholly different. The former deals with the disputes arising between panics to a contract, arising out of rights and liabilities granted under that contract whereas the latter concerns die oppression of a class of shareholders or of mismanagement of a company. The acts of oppression agitated in the above company petition are (a) diversion of company's business; (b) mismanagement of the company; and (c) violation of non -compete clauses. It is the sole prerogative of the respondents herein to choose which remedy to enforce upon. The proceedings in respect of the Mumbai franchisee have nothing to do with the present disputes. In view of the reasons, he requested the Bench to dismiss the application as devoid of merits. In support of this, the learned counsel relied upon the following citations: (i) In the matter of Sumitomo Corporation v. CDS Financial Services (Mauritius Ltd.) : [2008] 83 CLA 343 (SC)/[2008] 4 SCC 91. (ii) In the matter of Sporting Pastime India Ltd. v. Kasturi and Sons Ltd. : [2007] 81 CLA 208 (Mad.)/[2007] 141 Comp Cas 111. (iii) In the matter of Das Lagerway Wind Turbines Ltd. v. Cynosure : [2007] 80 CLA 211 (Mad.)/[2009] 147 Comp Cas 149. Heard the learned counsel who appeared for the respective parties, perused the pleadings, documents and citations relied upon by them. The only issue felt for consideration is whether the applicants herein have made out a ease to refer the disputes to arbitration. The above company petition was filed by the respondents herein under sections 397, 398, 402 and 406 and other provisions of the Companies Act, 1956. The application herein are the respondents in the above company petition. The respondents alleged the acts of oppression and mismanagement in the affairs of the 1st applicant -companies herein which is called as 'target company'. The 1st respondent herein and the 2nd and 3rd applicants herein are the only shareholders holding 33.28 per cent and 33.33 per cent of the paid -up shares respectively in the 1st applicant -company. The facts as made in the above company petition are that the 1st respondent herein, under the brand name of TIME has a countrywide reputation on of being the premier institute for coaching for management entrance examinations and other competitive examinations and it has vast experience in conducting classes, preparing material and training faculty to conduct such classes. The R1 -company had used franchising model to expand its business. The franchisees use all this intellectual property to run the courses under the guidance and supervision of the 1st respondent herein. The franchisees pay to the 1st respondent a fee royalty which is a fixed percentage of the fee collected from the students and material value. However, this amount varies from course to course. Whilst so, the 2nd and 3rd applicants herein evinced interest in being franchisees of R1 -company for the city in Kolkata. It was decided to form a joint venture by the 1st respondent and the applicant Nos. 2 and 3 herein. Accordingly, the 1st applicant -company came to be incorporated and the present shareholding pattern stands as mentioned above and there is no dispute on that. The Board of directors of the 1st applicant -company consists of three directors, i.e., 2nd and 3rd applicant and one Mr. P. Viswanath who is a nominee of the R1. The 2nd and 3rd applicants being in majority have complete control over the decisions taken by the Board including crucial matters regarding day -to -day working of the company. The mailers listed in article 35 require unanimous approval of the Board of directors. Further, from the perusal of article 55 of the articles of association of the 1st applicant -company, it is in relation to borrowings, loans, guarantees, change in the clauses of memorandum or articles, entering into any new business, etc., and is divided into eighteen sub - -clauses. Article 43 of the articles of association of the 1st applicant -company is regarding non -compete clause. As per this article, the shareholder of the company shall not directly or indirectly engage, invest or participate in or provide assistance to any person or entity which competes with the R1 -company in India or abroad, except with the prior written approval of the Board. The said articles of association contain the arbitration clause. It is the case of the respondents herein that the 1st applicant entered into a franchisee agreement for the area in Kolkata with the 1st Respondent herein in the year 2003 for a period of three years which was renewed from time to lime thereafter. The last renewal of this agreement was on 19th April, 2011 with effect from 1st April, 2011 for a period of three years. The Franchisee agreement is in force as on the dale of tiling of the above company petition, it is also evident that the 1st respondent herein and the 2nd and 3rd applicants also entered into a shareholder agreement dated 14th August, 2002. The franchisee agreement and the shareholders' agreement are not proved to be nullity, hence, enforceable under law. It is contended that the 1st applicant carried on coaching for various entrance examinations at national level institutes and other exams in robust. Further, it is contended that the 1st applicant's performance in some of the courses was very poor. It is stated that in view of the poor performance by the 1st applicant, the 1st respondent decided to terminate those courses. Further the 1st applicant proposed a resolution to withdraw from the franchisee of the 1st respondent and the said resolution was passed in spite of the nominee of the 1st respondent voting against that resolution. In the above company petition, the acts of oppression mentioned are that diversion of 1st applicant's business by the 2nd and 3rd applicants even before termination of the franchisee agreement. The other acts as mentioned by the respondents herein are that the 1st applicant company has been mismanaged by the 2nd and 3rd applicants and further alleged violation of non -compete clauses contained in the articles. Shareholders' agreement and franchisee agreement. In deciding the above issue, the clauses of the articles, the shareholders' agreement and the franchisee agreement are essential to the gone -through. There is no dispute with regard to the incorporation of the 1st applicant, its objects, the shareholding pattern and the number of directors. Clause 43 of the articles is a non -compete clause which reads, thus : For so long as a parry is a shareholder in the company, he/she shall not and shall ensure that such affiliate of such party shall not directly or indirectly engage, invest or participate in or provide assistance to any person or entity which competes with the company in India or abroad, except with the prior written approval of the Board, which shall not he withheld unreasonably, TIME (P.) Ltd. shall he exempt from this clause as it is already pursuing some of these activities. Further the articles of association provide the arbitration clauses at No. 44 and 40 which read, thus : Clause 44 : "If any dispute, difference, claim or question shall arise between the parties hereto in any matter touching these presents or any claim or flung herein contain or its to any matter or in any way connected with or arising our of these presents or the operation thereof or the rights, duties or liabilities of either parry thereof in connection with these presenti, the parties hereto shall endeavour their best to settle the said disputes or differences amicably between themselves clause 45 readsm thus : "All disputes, differences, claims, questions and controversies arising in connection with and are in relation to these presents which the parties are unable to settle between themselves shall be finally settled by arbitration and the Rules of the Indian Arbitration Act shall apply and shall he held at Hyderabad, Andhra Pradesh, Each party shall pay the expenses of their arbitrators and the fee of the umpire and his expenses shall be shared equally by the parties to such arbitration. The R1 -company and the 2nd and 3rd applicants, prior to incorporation of the 1st applicant company, have entered into a shareholders' agreement dated 14th August, 2002. As per the shareholders' agreement, the above three promoters agreed to invest in the 1st applicant company which would be incorporated under the Companies Act, 1956. It is slated in the shareholders' agreement that the 1st applicant company will set up the centres in Kolkata to provide for the training in competitive examinations. As per the shareholders' agreement, the 1st applicant -company came to be incorporated on 25th March, 2003. In the shareholders' agreement el is clearly mentioned at article 9, which is a non -compete clause. Article 9.1 of the shareholders' agreement reads as follows : "For so long as a party to this agreement is a shareholder in the company, it shall not, and shall ensure that such affiliate of such party shall not directly or indirectly engage, invest or participate in or provide assistance to any person or entity which competes with the company in India or abroad, except with the prior written approval of the hoard, which shall not be withheld unnecessarily Further, the shareholders' agreement also provides for arbitration clause, similar and ditto verbatim to the clauses mentioned in the articles of association. Further, it is also important to mention about the franchisee agreement which was entered originally in the year 2003 and renewed from time -to -time. Currently, the franchisee agreement is in force for a period of three years from 1st April, 2011 to 31st March, 2014. The Franchisee agreement was entered into between the 1st respondent herein and the 1st applicant. From the perusal of the franchisee agreement, the franchisee will need written authorisation to start new courses not mentioned the Annexure. In clause 4 of the franchisee agreement it is specifically mentioned that "the Franchisee, under no circumstances, conduct competing business activity". Therefore, it is significant to mention that the Franchisee agreement have the clauses which control the business activities of the applicant company. Clause 30 provides for termination wherein it is stated that "the franchisee is an independent contractor and nothing shad constitute the franchisee as an agent, legal representative or partner, etc.". Further, the respondent has the right to terminate the agreement under the above clause on the reasons as stated therein, the franchisee agreement also provides for arbitration clause, the said clause is reproduced for better appreciation : "All disputes and differences of whatsoever nature arising out of or concerning this agreement whether during its term or after expiry thereof or prior, termination shall be referred to two arbitrators, one of whom is nominated by the franchisee and the other nominated by the director of TIME and the decision of the said arbitrators shall be final and binding on all parties of this agreement. And the provisions of Indian Arbitration Act, 1942 shall apply to the matters not provided herein From the above, it is unequivocal that the said agreements shall be binding on the parties thereto containing the provisions to enforce the same in case any party to the agreements violate the provisions thereof: From the culmination of the averments and the reliefs sought in the above company petition, it is clear that die respondents have alleged that the applicants herein attempted to compete with the business of the 1st respondent and thereby violated the shareholders' agreement. Franchisee agreement and the articles of association. As stated supra, the shareholders' agreement clearly provides the non -compete clause and if the said clause or the clauses are violated the remedy is available to the parties therein to refer the disputes, differences to the arbitration us per the arbitration clause. The shareholders' of the 1st applicant company being parties to the shareholders' agreement, it is binding on the 1st applicant company. Further, the articles of association also provide similar clause as made in the shareholders' agreement, i.e., non -compete clause. It is to say that the articles of the company arc the internal regulations of the company and it is binding on the company, its shareholders and shareholders inter se. In view of the arbitration clause, the shareholders can avail the remedy as contemplated under the arbitration clause on the ground that the applicants have violated the terms as contained in the Articles mainly the non -compete clause. Further the Franchisee agreement, which is in force as on the date of filing of the above company petition, the allegations and the averments which are made by the respondent herein in the company petition, in my view, are fully covered under the franchisee agreement. The franchisee agreement also provides for termination of the Franchisee. Even if there is any challenge to the termination of the Franchisee agreement, the parties have recourse under the said agreement, but not before this Bench. The nature of reliefs which the respondents herein have sought in the main company petition is in relation to violation of the franchisee agreement the learned counsel for the respondents relied upon certain decisions stated above in support of his case which are not squarely applicable to the facts of the present case. In view of the reasons, as staled, the application deserves to be allowed by referring the parties to arbitration. Hence, CA No. 1/2013 in CP No. 78 of 2012 is allowed as prayed for to protect the interest of the parties herein, the order of this Bench dated 13th September, 2012 is continued for a period of sixty days from today. Accordingly, CP No. 78 2012 is dismissed. No orders its to costs.;